Calling a worker a subcontractor does not settle their legal status. Neither a signed independent-contractor agreement nor a 1099 form overrides the actual working relationship. Misclassification can create wage, tax and insurance consequences. S13
AB 5: start with the ABC test
California’s ABC test generally presumes employee status unless all three requirements are met: freedom from the hiring entity’s control over the work, work outside the hiring entity’s usual business, and an independently established business of the same nature. A business registration or business card alone does not establish that third requirement. S13
What is the construction exemption under AB 5 in California?
Construction also has a specific subcontracting provision in Labor Code section 2781. Where its conditions are satisfied, the analysis uses the Borello standard and Labor Code section 2750.5 rather than the ABC test. Meeting an exception does not automatically prove independent-contractor status. S13
Read the facts before choosing an answer
Ask who directs the work, who supplies equipment, whether the business serves other clients, whether required licenses exist, and who bears business risk. These facts must be assessed under the correct legal test. Do not treat any single item as a universal safe harbor.
For example, a licensed subcontracting business performing a defined part of a project through its own business operation requires a different analysis from an individual placed under daily supervision in the hiring company’s crew. The label on the invoice does not resolve either case.
Apply the rules in the right order
First identify the relationship and the applicable rule. Then check every condition of any exception before applying its alternative test. Finally, distinguish classification from the separate duties to carry workers’ compensation, pay wages and keep records. For an actual hiring arrangement, resolve uncertainty before work starts rather than after a claim.
Sources
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